Commercial property is undeniably a booming industry in the UK, whether it be offices, retail, leisure, industrial and manufacturing facilities, or healthcare. The commercial property industry makes a major contribution to the UK economy, generating 2.5% in national tax revenues.
Perhaps you have experience being a residential landlord and are considering dabbling in commercial property investments for the first time. Why not? After all, there is a demand amongst businesses for excellent workspaces that help promote a first-class company culture. Let’s go into a few reasons to become a first-time commercial property landlord in the UK.
Differences between commercial and residential landlords
First, let’s address how being a commercial landlord differs from being a residential landlord. The main fundamental difference will be your tenants – a commercial landlord’s tenants are using the property for business purposes, whereas individuals and families rent residential properties to live in them.
Other differences between operating as a commercial and residential landlord include
- Commercial properties requiring a higher initial investment
- Commercial properties tend to be on longer lease agreements
- Commercial properties offering the potential for higher profits
- The tenant usually pays for the maintenance in a commercial property, whereas this is the landlord’s responsibility in residential property tenancies
Some concepts remain the same for both commercial and residential landlords. For instance, taking out a comprehensive landlord insurance policy will always help to protect your property investment. Remember to take out a specialist commercial landlord insurance policy when becoming a commercial landlord for the first time.
A constant, reliable source of passive income
Often, you will be able to let out commercial properties on fairly lengthy lease agreements. The benefit of longer leases is that they provide you with a constant source of income. Looking for an asset to pass on to your children or a source of income to tidy you over in your retirement years? Becoming a commercial landlord of sought-after commercial space could be a smart investment move.
Higher rental yields
Businesses making sizeable profits will want to have top-quality business premises for their staff. As a commercial landlord, you may well be able to take advantage of businesses willing to pay higher rental payments than you could generate through renting out residential properties.
Commercial property tenants tend to be better at property maintenance
Residential tenants don’t always maintain a property well, as many residential landlords discover each year. Becoming a commercial landlord, you will quickly learn that commercial tenants make more of a concerted effort to maintain the property properly to a high level. After all, a business can easily put off customers and potential new employees if they do not have welcoming business premises.
The UK government encourages commercial property investment since it is good for the economy. One of the ways the government does this is by offering tax benefits and deductions to commercial property landlords. ‘Business Asset Disposal Relief’ allows you to pay less Capital Gains Tax on commercial property or assets, and this is a prime example of the tax deductions offered to commercial landlords.
Expand and diversity your investment portfolio
Another sensible reason to become a first-time commercial landlord is that it is a great way to grow and diversify your investment portfolio. Buy-to-let residential property investments can be volatile depending on inflation, mortgage rates, and housing prices, whereas businesses always need premises and therefore owning commercial property is a more stable recession-proof investment.